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QUESTION
Assume the price of your product is $10. The variable cost per unit is currently $5 and fixed costs are $15,000 per month.
- Assume the price of your product is $10. The variable cost per unit is currently $5 and fixed costs are $15,000 per month. Assume that the company can invest in some equipment that will reduce variable costs to $3 each, but the cost of financing the new equipment will increase fixed costs to $17,500 per month. Compare the breakeven points for these two different options. Assuming the firm believes it can sell 2,800 units of its product at the $10 price, which is the better choice? WHY?
